Kraków still the leader in regional office markets

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In Cracow, companies are slowly returning to talks about leasing offices, and investors are preparing new projects.

– We can observe acceleration of the processes of renegotiating lease agreements on the Cracow market, as well as in other regional markets. At the same time, the number of subletting offers is growing. Some companies have already determined the work mode that is best for them in the new business environment. They verified the demand for the number of positions and decided on the shape of the new office. Other organizations still have to make strategic decisions and look for a solution that will be most suitable for the company, adapted to the new style of work, and at the same time optimal in terms of cost. Some tenants have decided to reduce space, while companies from industries that have accelerated in the pandemic are preparing to expand. It should be mentioned that Cracow is still very eagerly chosen as a place for business by large international companies and corporations that plan to develop their business in Poland – says Mateusz Strzelecki, Partner/Head of Regional Markets at Walter Herz.

– Everything indicates that the pandemic slowdown is behind us. In Cracow, which is the second largest office market in Poland, we can still observe a lot of investor activity, hence we decided to further develop the Cracow branch of Walter Herz in order to be able to provide clients with even stronger support on the spot. Kamil Kowalewski has joined our team in Cracow. He has gained experience in companies operating on the Cracow commercial real estate market, working, among others, at Cavatina and successfully commercializing projects such as Equal Business Park, Ocean Office Park and Tischnera Office- informs Mateusz Strzelecki.

Forecasts regarding the inflow of new investments to Poland encourage developers to be active. According to Walter Herz, in 2020 over 140 thousand sq m. of modern office space was created in Cracow, which is the largest number among the regional centers. There is currently about 150 thousand sq m. of space under construction and further projects are being prepared for implementation. Almost a third of the offices built in the city are to be commissioned by the end of this year.

In the first months of this year, Cavatina delivered Equal Business Park D building with 11.6 thousand sq m. of space and Ocean Office Park A1 office building with 7.8 thousand sq m. of offices. In addition Lubicz I Business Center expanded by 2 thousand sq m.

New office buildings

Tertium Business Park III project (13 thousand sq m.), developed by BUMA, and the first building of The Park Cracow I complex (12.5 thousand sq m.) by White Star, among others, are currently under construction in Cracow. In the first quarter of 2022, Skanska plans to commission the third stage of High5ive office complex (10.6 thousand sq m.) located in the city center. A few months ago, Echo Investment started the construction of Brain Park office complex in Cracow, which in the first stage of implementation, in the third quarter of 2022, is to deliver around 30 thousand sq m. of modern office space. Warimpex has also recently received a permit to construct new office buildings in Cracow.

According to Walter Herz data, our largest regional center has a back-up of almost 1.6 million sq m. of modern office space. At the same time, the quality of the offer is very good, because half of Cracow’s resources are not older than 5 years.

Not counting the last year, which was one of the weaker ones in terms of supply growth, Cracow office market is expanding annually by an average of almost 20 per cent. The capital of Lesser Poland Province, with 1.1 million residents and 135 thousand students, which is the second largest business center in the country after Warsaw, has been leading in the regions for many years. The city’s advantage is the ability to attract companies from the modern business services sector. Cracow shared service centers employ the largest number of people in Poland. Cracow is also one of the global locations of strategic importance for international companies, which are attracted by the current situation on the IT market, as the city has almost 50 thousand of well-qualified specialists in that field.

Highest demand in the regions

Therefore, the demand for office space in Cracow remains at a good level. In 2020, almost 160 thousand sq m. of offices was contracted in Cracow, which gives the city the position of a regional leader in terms of demand. According to Walter Herz, the volume of lease transactions concluded in the first quarter of this year amounted to almost PLN 30 thousand sq m. of space. Despite the drop in absorption, which is visible in all office centers in the country, Cracow is one of the markets that performs best in the pandemic.

Over the last year, the vacancy rate in Cracow has increased by approximately 5 per cent. to 15 per cent. Asking rents remain stable, but the owners of office buildings and developers are forced to compete increasingly harder for tenants.

– Over the last several months, remote work has grown significantly in popularity, but market analysis shows that the vast majority of companies will build their further activities based on traditional offices. Flexible offices and co-working spaces, which are very popular, won’t be a dominant solution for companies in the new business environment, but only one of the elements of the rental plan – says Emilia Kalińska, Leading Senior Negotiator/Regional Coordinator. – Last year, some companies took advantage of the possibility of extending their lease contracts on attractive terms, thus gaining time. This year, we can already see greater decision-making and readiness to return to talks about the ultimate office space – informs Emilia Kalińska.

Tenant’s market

Kamil Kowalewski, Senior Negotiator at Walter Herz, who has just joined the team at the Walter Herz branch in Cracow, notes that thanks to the greater availability of office space, the opportunities for gaining an advantage in talks with landlords have increased. – The tenant market creates an opportunity to negotiate many additional benefits, including a longer rent-free period or a higher subsidy for arranging offices, which ultimately affects the amount of effective rent. The amenities that companies can now count on also relate to the duration of the contract and the optimization of space during the lease. Despite the beginning of the summer holidays, taking into account the current conditions that tenants can count on, we believe that this is a very good time to make a decision to start renegotiating lease agreements or moving the company to a new location. It is worth taking advantage of the favorable negotiation moment created by the market and thoroughly analyze the issue of rental. That is why we are inviting interested companies for free consultations to our new Cracow office, located in Chillispaces in Fabryczna Office Park building at Fabryczna Street in Cracow – encourages Kamil Kowalewski.

The greatest demand for offices in the capital of Lesser Poland Province is generated by companies from the business services sector and enterprises related to new technologies. Currently, 82.1 thousand people are employed in over 247 business service centers in Cracow. The capital of Lesser Poland is in this respect a leading location, both in Poland and throughout Central and Eastern Europe. The average increase in employment in this sector in Cracow in recent years has amounted to almost 10 per cent per year.

Last year, among others, such sector companies as ATFX, Backbase, BCD Travel, Bitpanda, Bystronic, Cytiva, Devire, EQ Tek, GFT, Harvey Nash Technology, Mohawk Group, OANDA, PepsiCo, Splunk, Tivron and Verisk invested in Cracow. Walter Herz data shows that over 60 per cent of office space on the Cracow market is occupied by tenants from the modern business services sector.

Source: Walter Herz

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